The Public Accounts Committee has published a scathing report on the decision to build a new hospital at Peterborough under the PFI (private finance initiative) scheme and hand over its neighbour Hinchingbrooke Hospital into private control, in moves which has left both Trusts with huge deficits.

According to the damning report, a "complete lack of strategic oversight" led to separate decisions giving the go-ahead for the new PFI hospital and the franchising of Hinchingbrooke, with no consideration for the impact they would have on the the local health economy and health spend.

The hospitals are a mere 24 miles apart in the East of England which, it notes, is an area long known to over-provide acute healthcare. 

"The decision to approve these two deals flies in the face of past and present government policy to treat more people outside hospitals and to concentrate key services in specialist centres," it notes, adding that it has "left the Government with two hospitals whose financial viability and future is in doubt and whose value for money has not been secured".

Neither of the Trusts is now financially sustainable as they stand, and both will need to claw back considerable savings if they are to continue operating.

The PFI hospital at Peterborough and Stamford Hospitals NHS Foundation Trust was fully operational in December 2010, but, by the end of 2011-12, it had already piled up a shortfall of £45.8 million on a turnover of £208 million. 

Warnings ignored

Monitor’s warnings about the affordability of the PFI deal were not acted on by the Trust, the East of England Strategic Health Authority (SHA) or the Department of Health, the PAC said, and subsequently weaknesses in its financial management hugely magnified the problem. 

The situation is now is so critical that, even if the Trust can generate "challenging annual savings", it will still need financial support from the government of up to £26 million a year for the next 30 years to remain viable.

Hinchingbrooke Health Care NHS Trust is the first NHS trust to be run as an operating franchise, a move spurred by its £39 million annual deficit on an annual income of around £73 million. 

"Management errors and inaccurate income projections associated with the opening of a £22 million PFI treatment centre" were found to be a root cause of its financial dire straits. 

Consequently, the Trust also needs to achieve substantial savings to remain viable, and the franchisee, Circle Healthcare, is failing to make the savings it expected to, just months into the project. 

Not risk assessed

"We are concerned that Circle’s bid was not properly risk assessed and that Circle was encouraged to submit overly optimistic and unachievable savings projections," the PAC notes, and stressed that "while some financial and demand risk has been transferred to Circle, the NHS can never transfer the operational risk of running a hospital leaving the taxpayer exposed should the franchise fail".

According to MP and PAC member Stewart Jackson MP the local community, the NHS and taxpayers will have to live with the consequences of these decisions "for many years to come", and he noted that "none of the health bodies involved, including the Department, seems to have looked at the overall impact these decisions would have on the local health economy". 

“Both Trusts will have to make unprecedented levels of savings to become viable. In Peterborough and Stamford’s case, this won’t be enough. The future of both is in doubt, with unknown consequences for patients in the area and the taxpayer," he warned.

Monitor said it has now strengthened its system for assessing risk in FTs under a new regulatory regime to help identify and act upon risks before they materialise.

It also stressed that a Contingency Planning Team (CPT) of a range of experts is currently looking at the situation to recommend a long-term solution "which both ensures the sustainability of services for patients and minimises the further burden on the taxpayer".